Tight Supply Drives Existing Home Prices Higher

Sales
of existing homes
fell in May, but that decline may have been due to a lack of
available homes rather than a lack of demand. 
According to the National Association of Realtors® (NAR), total existing
home sales including single family homes, townhomes, condominiums, and
cooperative apartments, declined 1.5 percent to a seasonally adjusted annual
rate of 4.55 million in May from 4.62 million in April.   Sales
were up 9.6 percent from the 4.15 million sales pace in May 2011.  The national median existing-home price3 for all housing types rose 7.9 percent to $182,600
in May from a year ago, the third consecutive month of year over year price
gains.

The
total inventory of homes for sale at the end of May was down 0.4 percent to
2.49 million existing homes, a 6.6 month supply at the current sales pace.  One year ago there was a 9.1 month supply and
at a cyclical peak in July 2010 the inventory stood at a 12.1 month supply.

Existing Home Sales

Click Here to View the Existing Homes Sales Chart

Lawrence Yun,
NAR chief economist, said inventory shortages in certain areas have been
building all year.  “The slight pullback
in monthly home sales is more likely due to supply constraints rather than
softening demand.  The normal seasonal
upturn in inventory did not occur this spring,” he said.  “Even with the monthly decline, home sales
have moved markedly higher with 11 consecutive months of gains over the same
month a year earlier.”

Yun said properties in the
lower price ranges are in short supply in much of the country outside of the
Northeast.  Real estate agents in western
states have been calling for an expedited process to get additional foreclosed
properties on the market to alleviate shortages and much of Florida is in a
similar situation.

Sales of single family homes
were down 1.0 percent to a seasonally adjusted rate of 4.05 million from 4.09
million in April.  This is 10.4 percent
above the 3.67 rate of sales one year earlier. 
Condo and co-op sales were down 5.7 percent to a rate of 500,000 from
530,000 a month earlier but are 4.2 percent higher than a year earlier.

The median price for a single-family
home was $182,900, an increase of 7.7 percent from May 2011 while the median
condo price saw an annual increase of 8.8 percent to a median of $180,000.  “Some of the price gain results from a
shrinking share of distressed homes in the sales mix,” Yun explained.

Foreclosures accounted for 15 percent of
sales in May and short sales for 10 percent. 
This 25 percent share is down from 28 percent in April and 31 percent in
May 2011.  Foreclosures sold for an
average discount of 19 percent below market value in May, while short sales
were discounted 14 percent.

First-time buyers accounted for 34
percent of purchases, down from 35 percent in April and 26 percent in May 2011.
 Investors purchased 17 percent of homes,
down from 20 percent in April and 19 percent a year earlier.  All-cash sales represented 28 percent of
transactions compared to 29 percent and 30 percent in the earlier periods.

NAR President Moe Veissi said there are reports
of multiple offers and quick sales in areas with a tight supply of housing and
of competition between first-time buyers and cash investors.  He advised buyers to continue to perform due diligence
and make offers with appropriate contingencies as they would in a more balanced
market.

Regionally, existing-home sales in the Northeast fell
4.8 percent to an annual level of 590,000 in May but are 7.3 percent higher
than May 2011.  The median price in the
Northeast was $250,700, up 3.8 percent from a year ago.

Midwest sales rose 1.0 percent to a pace of 1.04 million,
9.5 percent above a year ago.  The median
price in the Midwest was $147,700, up 6.4 percent from May 2011.

Sales in the South were down 0.6 percent to an annual level
of 1.78 million but are 9.2 percent
higher May 2011. 
The median price in the South was $159,700, up 7.8 percent from a year
ago.

Existing-home sales in the West declined 3.4 percent to
an annual pace of 1.14 million in May but are 3.6 percent above a year ago.  The median price in the West was $233,900, up
13.4 percent from May 2011.  “The sharp
price increase in the West results largely from more sales at the upper end of
the market,” Yun explained.

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NAR: Existing Home Sales and Inventories Improved in January

There was more good news from the
National Association of Realtors® (NAR) on Wednesday as they reported that the
sales of existing homes rose in January, marking three months out of the last
four where sales improved.  Inventories of
homes for sale were also improved and NAR disputed the need for a program to
rent foreclosed properties

Total sales of existing homes
including single family houses, condominiums, and cooperative apartments, increased
4.3 percent
to an annual, seasonally adjusted rate of 4.57 million units during
the month compared to a downward revised rate of 4.38 million in December and
are 0.7 percent above what NAR described as a “spike” in the rate in January
2011.  December 2011 sales were
originally estimated at a rate of 4.61 million.

The median price of all property
types was $154,700 in January, an annual decrease of 2.0 percent.  Foreclosed properties accounted for 22
percent of all sales and short sales for 13 percent.  The total distressed sales were down 3
percentage points from the 35 percent reported in December and 5 percentage
points lower than those sales one year earlier.  

Sales of existing single-family
homes rose 3.8 percent to 4.05 million from 3.90 million in December and are
2.3 percent higher than the 3.96 million pace in January 2010.  The median price of a single-family home was
$154,400 in January, down 2.6 percent from a year earlier.

Click Here to View the Existing Homes Sales Chart

Condominium and co-op sales jumped
8.3 percent to 520,000 from 480,000 in December but remained10.3 percent below
the 580,000-unit level in January 2011.The median existing condo price was
$156,600, up 2.0 percent from the year before.

Total
housing inventory at the end of January fell 0.4 percent to 2.31 million
existing homes available for sale, which represents a 6.1-month supply at the
current sales pace, down from a 6.4-month supply in December.  Total
unsold listed inventory has trended down from a record 4.04 million in July
2007, and is 20.6 percent below a year ago. 

Lawrence Yun, NAR chief economist,
said strong gains in contract activity in recent months show buyers are
responding to very favorable market conditions.  “The uptrend in home
sales is in line with all of the underlying fundamentals – pent-up household
formation, record-low mortgage interest rates, bargain home prices, sustained
job creation and rising rents.”

 “The
broad inventory condition can be described as moving into a rough balance, not favoring
buyers or sellers,” he said.  “Foreclosure sales are moving swiftly with
ready home buyers and investors competing in nearly all markets.  A
government proposal to turn bank-owned properties into rentals on a large scale
does not appear to be needed at this time.”

All-cash sales were unchanged at 31
percent in January; they were 32 percent in January 2011.  Investors, who
account for the bulk of cash transactions, purchased 23 percent of all homes in
January compared to 21 percent in December but unchanged from a year earlier.  First-time buyers accounted for 33 percent of
sales in January compared to 31 percent in December and 29 percent in January
2011.

Forty-seven percent of NAR members
report that contracts settled on time in January; 21 percent had delays and 33
percent experienced contract failures.  Contract cancellations are
unchanged from December but were only 9 percent in January 2011; they are
caused largely by declined mortgage applications and failures in loan
underwriting from appraisals coming in below the negotiated price.

Sales were up in every region but
prices were down.  In the Northeast
existing home sales were up 3.4 percent month-over-month and 7.1 percent
year-over-year to an annual rate of 600,000 but the median price of $225,700
was 4.2 percent lower than a year earlier.

Sales in the
Midwest were at a pace of 980,000, 1.0 percent higher than December and 3.2 percent
higher than one year earlier but the median price declined 3.9 percent to
$122,000.

In the South, sales
rose 3.5 percent from December to 1.76 million in January but are unchanged from a year ago while the median price
declined a slight 0.3 percent to $134,800 on an annual basis.

Existing-home
sales took a healthy 8.8 percent month-over-month jump in the West to a 1.23
million annual pace but are 3.1 percent below a spike in January 2011. 
The median price in the West was $187,100, down 1.8 percent from a year ago.

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Existing Home Sales on Three Month Winning Streak, but Shadow Inventory Looms

Existing
home sales edged higher for the third consecutive month according to data
released this morning by the National Association of Realtors® (NAR).  December sales rose 5.0 percent on a
seasonally adjusted basis to an annual pace of 4.61 million over November sales.  Those sales, however, were revised downward
to 4.39 million from the 4.42 million estimate released last month.  December sales were 3.6 percent higher than
the 4.45 million level recorded in December 2010.  NAR reports there were 4.26 million existing homes sold in 2011, an increase of 1.7 percent from the 4.19
million sold in 2010.

Existing home
sales are based on completed transactions from multiple listing services (MLS)
nationwide and include sales of single-family houses, townhomes, condominiums,
and cooperative apartments.

Sales of
single-family homes rose 4.6 percent to an annual rate of 4.11 million from 3.93
million in November and were 4.3 percent higher than in December 2010 when existing
homes were selling at a 3.94 million pace. 
Condominium and co-op sales were up 8.7 percent to a rate of 500,000
compared to 460,000 in November but are lagging below the 510,000 pace of one
year earlier.

Lawrence Yun, NAR chief economist, said these are early signs of what may
be
a sustained recovery.  “The pattern of home sales in recent months
demonstrates a market in recovery,” he said.  “Record low mortgage
interest rates
, job growth and bargain home prices are giving more consumers
the confidence they need to enter the market.”

Median prices
were lower than in December 2010.  The
national median price for all housing types was $164,500 and for single family
houses $165,100; both figures were 2.5 percent below median prices in December
2010.  The median condo price was
$160,000, down 3.0 percent.   

Foreclosures accounted
for 19 percent and short sales 13 percent of sales in December.  This 32 percent total for distressed homes
was up from 29 percent in November but lower than the 36 percent share in December
2010.  Foreclosures
sold for an average discount of 22 percent and short sales were discounted 13
percent in December compared to 20 percent and 16 percent in December 2010.

The inventory of homes for sale (not to forget “Shadow Inventory, Moving not Falling“) at
the end of December dropped 9.2 percent to 2.38 million, representing a
6.2-month supply at the current sales pace and an improvement from the 7.2
months supply in November and Yun commented that the supply suggests many
markets will see prices stabilize or grow moderately in the near future.   The December inventory is the lowest since
March 2005 when there were 2.30 million homes on the market.  Inventories peaked in July 2007 with a
backlog of 4.04 million homes.

Thirty-one percent of sales were to
first-time buyers in December, down from 35 percent in November and 33 percent
a year earlier.  Investors accounted for
21 percent of sales, up from 19 percent a month earlier and unchanged
year-over-year.  All-cash transactions
rose to 31 percent from 28 percent in November.

Once again a third of NAR members
reported a contract failure
during the month, identical to November but a sharp
contrast to a year earlier when only 9 percent reported a cancelled sale.  NAR said that, “Although closed sales are
holding up better than this finding would suggest, contract cancellations are
caused largely by declined mortgage applications and failures in loan
underwriting from appraised values (read: “Appraisers say “Don’t Blame the Messenger” for Low Home Prices“) coming in below the negotiated price.”

A shown in the
table below, sales were up in every region month-over-month and in three
regions on an annual basis while median prices were down in every region except
the West. 

Region

Dec. Sales Rate

Nov/Dec Chg

Dec/Dec Chg

Med. Price

Annual Chg.

Northeast

620,000

+10.7

+3.3

$231,300

-2.7

Midwest

1,040,000

+8.3

+9.5

129,100

-7.9

South

1,760,000

+2.9

+3.5

146,900

-1.1

West

1,190,000

+2.6

-0.8

205,200

+0.3

While NAR speaks of a “market in recovery”, not everyone is on board:

“December’s existing home sales total of 4.61 mln was a little below the consensus of 4.65 mln, though up a solid 5.0% due to November being revised down to 4.39 mln from 4.42 mln. The data is another indicator suggesting housing sector improvement, with even some tentative hints of recovery in prices, while a falling inventory of existing homes for sale may encourage construction of new ones. However the level of December sales does hint that the surge in November pending home sales overstated the picture. Looking into the breakdown there are more minor disappointments, with gains led by regions that may have benefited most from mild weather, and a rise in distressed sales but a fall in sales to first time buyers.” 
-DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

“If you look at the report the supply fell, but what that doesn’t take into account is the shadow overhang, the distressed side of the market, people that are basically delinquent on their mortgages and haven’t gone through foreclosure yet. That pipeline is worth seven million units, and represents about 20 months of supply. The distressed is still a huge problem. When you look at home prices overall in the U.S. I think they’re still going to decline modestly in 2012.”
-JACOB OUBINA, SENIOR U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

“The heydays of the housing market are far behind us and it will be a long tough road to recovery. In fact, we still believe that housing will remain depressed for most of the year and the only way the Federal Reserve can help is by keeping interest rates low and monetary policy easy.”
-ATHY LIEN, DIRECTOR OF CURRENCY RESEARCH, GFT FOREX, JERSEY CITY, NEW JERSEY

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